Question
A business firm has the following details as of
31.03.2023 : •Additional bad debts during the year = ₹ 25,000 •The firm follows a policy of maintaining 10% provision on outstanding trade receivables. What will be the total amount affected in the Profit and Loss Account due to bad debts and provision adjustments?Solution
Calculation: 1.Total Bad Debts: oExisting bad debts = ₹ 6,000 oAdditional bad debts = ₹ 25,000 oTotal bad debts = ₹ 6,000 + ₹ 25,000 = ₹ 31,000 2.Provision Calculation: oNet receivables after bad debts = ₹ 3,00,000 - ₹ 31,000 = ₹ 2,69,000 oNew provision (10% of ₹ 2,69,000) = ₹ 26,900 oOld provision = ₹ 18,000 oIncrease in provision = ₹ 26,900 - ₹ 18,000 = ₹ 8,900 3.Total impact on P&L: oTotal bad debts (₹ 31,000) + Increase in provision (₹ 8,900) = ₹ 40,000
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